The most prominent piece of tax legislation to surface in 2004 may be the revisiting of the Lifetime Savings and Retirement Savings Accounts that were proposed in 2003. They weren’t included in the 2003 tax law but top officials of the Bush Administration have indicated that this will be a priority for 2004.
As proposed last year, Lifetime Savings Accounts (LSAs) would allow anyone to put away up to $7,500 a year, with tax free withdrawals at any time; Retirement Savings Accounts (RSAs) would allow anyone to contribute an additional $7,500 a year, with no taxes due on withdrawals after age 58. If there is a chance such legislation should pass, you might want to wait before making certain types of investments. Caution lights are out for:
Cash value life insurance as an investment vehicle. Among the attractions are tax-free buildup as well as the opportunity to receive tax-free withdrawals and loans. If tax-free investment accounts are created, you might be better off buying term insurance and investing the savings in LSAs.
Variable annuities. The tax-deferral opportunities of variable annuities won’t stack up well against the opportunity for tax-free income.
